(Editor Note: Insight Bytes focus on key economic issues and solutions for all of us. Please right click on images to see them larger in a separate tab. Click on the Index Topic Name at the beginning of each post to see more posts on that topic on PC or Laptop.)

Photo: heartlandhospice.com

Midwest farmers are declaring bankruptcy at a rate not seen since the Great Recession. As prices for corn, soybeans, milk and corn decline to decade lows, the Minneapolis Federal Reserve reports that Chapter 12 bankruptcy filings in 5 states of the Ninth District.

The Federal Reserve notes that based on the level of bankruptcies and the trajectory of the increase that bankruptcies will only increase. The government shutdown is exacerbating farmland pain. The Trump administration announced last summer $12 billion in farmer subsidies. But, because of the shutdown many farmers applying for subsidies and loans to plan for spring planting are not receiving the money they need. Many farmers and agriculture businesses are affected by the Department of Agriculture shutdown versus coastal states as shown below.

Source: Axios – 1/12/19

China turned to Russia and Brazil for soybeans in particular in the 4th Qtr of last year. US sales to China dropped to almost zero. As a negotiating tactic, China last week did pledge to buy more soybeans as traders in Chicago noted last week an increase in sales orders. However, when China switched purchases to major suppliers last year it will be difficult for US farmers to unhook those deals already in place. As one farm owner noted, “ it just seems like it’s one thing after another, over and over.”

Heartland challenges have actually been going on for years even before the Great Recession with the loss of millions of manufacturing jobs since China joined the WTO in 2000. The rural regions of the country have seen their wages grow at half the rate of metro areas. The opioid epidemic has cost thousands of young workers future careers, unemployment is twice what it is in the East and West. The digital internet infrastructure in rural areas is quite often at analog rates 4 times slower than broad band. Companies are at a disadvantage versus their metro competitors with slow bandwidth. Rural region hospitals are closing at an increasing rate leaving many rural people with hundred mile or more drives to the nearest emergency room. Life expectancy in Mississippi is the same as Libya. Heartland America has been left out the metro mainstream economy for the past 20 years. Our post – The Hallowing Out of Heartland America shows how rural regions have fallen behind in many infrastructure areas including: healthcare, Internet bandwidth, jobs, education with limited upward mobility for young people.

Next Steps:

The Heartland Venture Marshall Plan is similar in concept as the Marshall Plan deployed by the U.S. to rebuild the infrastructure of Europe after WWII, but instead of a government bureaucracy the Silicon Valley style innovation venture model is used. Venture development is designed to start small, build on successful prototypes and use multiple sources of funding to gain as much support as fast as possible to make the venture a success. Failure is part of the success fast, try several prototypes, do it, tweak it, try it again until it works or achieves the goals we set for the venture.

Here is a summary of the idea from our post of September
2017:

“We propose
building a startup
non-government organization. We are recommending a difference approach by the
Federal government to act as an investor in a non-government organization
called a Heartland Development Center.
An HDC acts as a central hub of critical services and infrastructure
development while providing a continuous innovation system. The Heartland Development Center acts as a
catalyst creating an innovation ecosystem to jumpstart local economics and
social structures. HDCs would focus on all the key issues that a region
needs to address to rebuild their economy and people’s lives: business
formation, education and training, digital infrastructure, affordable housing,
engaged local innovation media and health care.

The Federal government would seed the financing of these NGOs in key regions with additional funding from local and state governments, and major corporations who would benefit from the newly available job force tuned to their needs. HDCs would be ‘startup’ organizations installed at Land Grant universities bringing in leaders in their respective fields – ie. business formation – Y Incubator, preventive health – Cleveland Clinic, or training – Opportunity@Work as contractors to the HDC. These NGOs would establish continuously renewing innovation processes to stay in touch with their citizen – customers and businesses. Administration services would all be contracted using cloud software services for HR, Payroll, Training, Benefits and other internal systems to keep costs down. The HDC startups would be piloted in 3 non metro areas, where they would tune their business and socio economic models for maximum impact, then use those working models to implement HDCs in 25 or more other key regions for 5 – 10 years.”

There is one indicator of the desperation that many rural people feel is the fact that the opioid epidemic has a 50 % greater incidence in the Heartland than in our metro or coastal cities. We need to be building bridges through programs like the Heartland Venture Marshall Plan between our coasts and the inland empire to bring together our people developing consensus and shared experiences. Each HDC would be staffed by a equal mix of apprentice and college graduates from local rural education systems and metro university graduates. They would comprise a ‘Heartland Service Corp’ modeled on the AmeriCorp program with a benefit of complete forgiveness of student debt for two to four years of service depending on the debt balance. We would be building shared experiences of our young people to bridge the gap between inland and coastal cultures. These young people can innovate new opportunities to create an economic future that works for all.

The financial mainstream media focus on policy declarations from White House policy spin masters like Larry Kudlow, Chief Economic Adviser to the President saying of the trade war, “it is trade dispute among family members.” Meantime, American farmer family incomes are being sacrificed as the first casualties of the trade war.

As Net Farmer Income drops along with the price of soybeans, the Chinese are cancelling their contracts with U.S. farmers and buying soybeans from Brazil and other suppliers like Russia.

Sources: China National Grain and Otis Information Center – 7/5/18

Sources: Bloomberg, China Customs – 5/18/18

It is a basic business reality that when customers go to other suppliers and secure contracts if the customer is pleased with the quality of new products they will stay with the new supplier. Our farmers are being cut out of business they have been building for decades, and now their livelihoods are being sacrificed to charge on in a lose-lose Trump Trade War (TTW). In the future, it will be difficult to impossible to get back much of the business farmers are losing as new suppliers become the incumbent.

Next Steps:

We need to stop being complacent about the costs and sacrifices of TTW, there are real costs being borne by farmers, businessmen and their families. We agree with 1100 economists who sent a letter to POTUS imploring him not to use tariffs as a mechanism for trade dispute negotiation and resolution. There is no evidence of trade wars solving trade issues, except for damaging the economies of all those countries involved, and in the case of the Depression setting the stage for WWII. The fact that the GOP Administration is minimizing the damage from their no strategy tariff program, is alarming and needs to stop. Farmers did not ask to be sacrificed for the TTW, and all the other businesses and families being hurt by this disastrous trade policy. They need our support by making our concerns known to the White House and Congress. We agree with Prime Minister Merkel who stated last week in regard to auto tariffs being renegotiated that any discussions should be pursued via the World Trade Organization in fairness to all parties. For over 40 years the United States has supported building the WTO and using trade treaties to open doors for American businesses, now is not the time to use bullying, intimidation and threats as tactics for solving economic issues.